Fed Wrestles With Market Expectations About Pace of QE

Managing market expectations is one of the Fed’s most challenging tasks. If market expectations get out of sync with what the Fed plans to deliver, it could be the source of unpleasant volatility.

Fed officials have been struggling of late managing expectations about its plans for the $85-billion-a-month bond-buying program, known as “quantitative easing.”

At their policy meeting in May, Federal Reserve officials expressed anxiety about shifting market expectations for the Fed’s $85 billion-per-month bond buying program. “A few members expressed concerns that investor expectations of the cumulative size of the asset purchase program appeared to have increased somewhat since it was launched last September despite a notable decline in the unemployment rate and other improvements in the labor market since then,” according to the minutes of the meeting released last week.